VCs Bet $40 Million On Money App For Those Living Paycheck To Paycheck

Zainab Baloch, a member operations specialist at fintech startup Even, speaks with CEO Jon Schlossberg at the company's Oakland headquarters. Photo credit: Even

Even, a tech startup that helps consumers with personal budgeting, has raised $40 million in new funding. Khosla Ventures led the Series B round, with Valar Ventures, Allen & Company and Silicon Valley Bank also investing. That brings Even’s total investment to date to $52 million, and Forbes estimates the Oakland, California startup will reach $20 million in revenue in 2018.

Before graduating college, Jon Schlossberg, Even’s cofounder and CEO, thought he wanted to join the FBI as a forensic psychologist, trying to figure out criminals’ motivations. He scratched that plan when he saw how bureaucratic the organization was and ended up working at a product design agency, and then at ecommerce retailer Bonobos. But Schlossberg says his boss at Bonobos eventually told him, “You need to leave. Whatever you do, I’ll be the first to invest, but you’re annoying.” Schlossberg adds, “I don’t do well when I don’t have agency over the outcomes at a company.”

Many Americans live paycheck-to-paycheck—60%, by Even’s estimates—and Schlossberg wanted to address that problem. He became inspired when he read a psychology paper about how poverty can cause people to make poor financial decisions. He founded Even in 2014 with Quinten Farmer, whom he met after reading a blog post Farmer wrote about cryptocurrencies. They spent three years researching and building the Even app, which launched in December 2017.

The app has three main features. The first is budgeting—it links to consumers’ bank accounts, pulls in income and expenses, asks about upcoming bills and estimates how much money they have left to spend. It’s harder than it sounds—half of Even’s 35-person team works in engineering, design or research, and the startup uses machine learning to try to predict personal cash flow. A second feature is automatic savings, a service popularized by companies like Acorns and Digit.

The third feature does more to differentiate Even from the cluttered category of personal finance apps: It offers a flexible-pay or “earned-wage” option where workers can access their earnings early. Let’s say you’re on a two-week pay cycle, and your rent is due in six days. Because your wife recently got sick, she can’t contribute to the rent payment this month. Using Even, employees can take out half of their earned wages—so if they’ve worked six days, they can take out three days’ worth of pay—instead of waiting until the end of the pay cycle to access the money.

To acquire new customers, Even’s strategy is to first approach employers and then offer the product to their employees as a subscription service. In December 2017, Walmart announced that it was making Even available to its 1.4 million U.S. workers. Today, more than 200,000 Walmart employees use Even monthly, and about 100,000 of them use it daily.

But Even isn’t the only earned-wage service cashing in on that deal. PayActiv, a 75-person San Jose company founded in 2013, also landed Walmart as a client, partnering with Even to process flexible-pay transactions. Most of the time a Walmart employee takes an earned-wage advance through Even’s app, it’s processed by PayActiv.

Like Even, PayActiv also offers additional features like budgeting and savings, and it has hundreds of other clients that use those services. A recent study indicated that employee turnover fell by 19% when workers used PayActiv. That makes PayActiv both a valuable partner and formidable competitor to Even.

How much does Even cost? Employees pay $6 to $8 a month for access. On average, users take out $150 in flexible-pay advances. If you use Even and only get value out of the earned-wage feature, you’re paying roughly a 5% fee to access your wages early. So it’s not cheap, but it’s much better than alternatives like payday loans.

New York startup DailyPay, another Even competitor, offers an earned-wage service, but it has a different business model. Instead of providing a suite of features as a subscription service, DailyPay focuses only on earned wages and charges per transaction. “It’s really hard to give starving people pots and pans,” DailyPay CEO Jason Lee says. “Starving people need food.”

DailyPay lets users access 100% of their earned wages, and it takes a transaction fee, which ranges from $1.25 to $2.99, every time a user takes an advance. The average advance is $66, and DailyPay users typically take advances once a week. New Jersey-based FlexWage also offers earned-wage services.

Schlossberg frowns on the transaction-based business model, because he thinks it incentives companies to encourage users to take more pay advances. “We’re not shoving earned-wage access down people’s throats,” he says. “We make less money when people take Instapay [earned-wage advances], because there’s a cost associated with that. We want to have higher margins by having people not rely on that advance, because they’re becoming more financially healthy, and they’re producing savings.”

Lee, of course, disagrees. “DailyPay is an ATM for earned or unpaid wages,” he says. “Just like an ATM, a user accesses her money and pays a transaction fee. When is the last time you used an ATM when you actually didn’t need the money?”

Schlossberg plans to double down on the bundled-service approach, adding more and more features over time. “We want to add so much value to the subscription, that by the time other companies realize, they won't be able to compete,” he says. “Amazon did this with Amazon Prime. It started out with free two-day shipping. And now it’s music and movies ... There’s just so much value in that subscription, no one can compete with it.”

I cover cryptocurrencies, blockchain, fintech and investing at Forbes. I’ve also written frequently about leadership, corporate diversity and entrepreneurs. Before Forbes, I worked for ten years in marketing consulting, in roles ranging from client consulting to talent ma...